How Much Life Insurance Do I Need?

Updated: Nov 20, 2019

Having life insurance policy for many people is a smart move that will ensure financial coverage for family and loved ones. The question is really how much life insurance do you really need? The answer to this is it varies based on your personal and financial circumstances, very simply, the payment from the insurance policy should be enough for your dependents to live on.

An easy formula for calculating how much life insurance you need is: Resources (income and liquid assets) - Financial obligations (expenses and debt) = Recommended life insurance death benefit.

Adequate life insurance coverage comes down to a “needs-based analysis” that takes stock of everything you pay for, or would need to pay for in the future. If you are not sure where to start, we have listed down some considerations you should take when shopping for life insurance.


If you die with outstanding debt, your surviving dependents may be responsible for all or part of it.

You would want to leave enough for your beneficiaries to continue paying off the loans, or better still, be debt free. Be sure to include any outstanding loans that you are still paying off. This can include your mortgage, car loan and other personal loans that you may be servicing. You may also want to include funeral costs here. The average funeral expenses range from $7,000 to $10,000 once you put together all the factors. Many policy holders work these final expenses into their coverage so their families do not bear a financial burden on top of the emotional toll of losing a loved one.


A dependent is a person who depends on your income for his or her living expenses. If you are married with children, your spouse and children would be considered dependents. If you also financially support your parents or other family members, they would be your dependents as well.

Taking into account their current lifestyles calculate the annual costs of their living expenses. Then multiply that by a reasonable factor that they would then be able to manage on their own.

When it comes to your spouse and children, consider the number of years they would need financial support. When it comes to parents, take into account the average life expectancy. Let us consider an example where your family’s monthly expenses are $5,000, and you would like to support them for 15 years, until roughly the time that your children start working.

$5,000 x 12 months x 15 years = $900,000

This figure will form part of your necessary death coverage.

Children's Education Needs

If you have kids, their education is probably a priority in your decision to get life insurance. Higher education can provide upward mobility and a comfortable life for your children later on, but paying tuition can be one the biggest expenses of adult life especially with rising cost in tuition fees.

Plan for what university will likely to cost in the future. Based on our estimation, tuition fees for a 3 year university course in 15 years time to be $50,000 for each kid. Remember to multiply that to the number of kids you have.

Your Available Resources

Once you have a clearer estimate of your financial obligations, the other part of the equation is to calculate your resources (income and liquid assets). This tells you what you already have in order.

There are two essential components in this category.

a) Your Assets

Your assets include your income, investment and dividends, rental income as well as any savings you may have accumulated. You may also want to include your CPF balance as part of your assets, as your dependents will receive this money upon your death.

b) Any Existing Insurance Coverage

Don’t forget to include the coverage you already have in existing policies. This could be your own personal policies as well as national schemes such as the Dependants’ Protection Scheme.

Calculate The Life Insurance Coverage You Need

Now that you’ve listed out both your financial obligations and resources, simply apply this formula: Resources (income and liquid assets) - Financial obligations (expenses and debt) = Recommended life insurance death benefit. The shortfall, if any, is the amount of additional life insurance coverage you need. Doing the math by hand to calculate the life insurance cost is a good idea, but it can be time consuming. To calculate how much you need, Insuree offers you an insurance checkup tool to help you determine how much money you need to cover your financial obligations. It will automatically add up your debt and expenses, take into consideration your assets and how long you need coverage to last. With a few easy inputs, it will determine your coverage gap. Simply sign up for a free user account here.

Insuree editorial content is intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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